Credit issuing businesses and other financial institutions often have difficulty with the non-payment of debt, such as credit card debt. In some cases, a financial institution does not receive payment because the customer is unable to afford payment. In other cases, a customer may intentionally not pay because the customer believes a purchase transaction that was made using the customer's account was fraudulent. In either case, the non-payment of debt may cost a financial institution millions of dollars a year in revenue.
Instead of seeking recovery of the debt from the consumer, the financial institution may be able to recover a payment for a purchase transaction from a merchant associated with that transaction. Requiring the merchant to pay for the purchase transaction may stem from certain obligations the merchant may be under in accepting a customer's financial account device (e.g., a credit card) as payment for the transaction. For instance, when accepting a customer's credit card as payment, the merchant is typically obligated to verify the customer's signature, confirm the account is not expired, and obtain authorization from the financial institution that issued the credit card. Such obligations are typically part of an agreement the merchant may have with a credit card organization, such as MasterCard™ or Visa™, and/or the financial institution that issued the credit card. If the merchant does not comply with these obligations and the customer does not pay, then the merchant may be responsible for paying the transaction amount—even though the financial institution (e.g., the credit card issuer) already paid the merchant on behalf of the customer for the purchase transaction. The act of recovering payment from the merchant is referred to as a “chargeback.” That is, the financial institution charges back the merchant for the amount of the purchase transaction. Further, in some cases, the chargeback may be done via the merchant's bank (e.g., the financial may charge the merchant's bank for the purchase transaction and the bank will then recover payment from the merchant).
Most financial institutions will thus attempt to chargeback the merchant in appropriate circumstances. However, determining whether a purchase transaction can be charged back to merchant is typically time consuming. A problem may thus occur when the cost of determining whether the transaction can be charged back exceeds the amount of any payment recovered. Indeed, a financial institution may spend substantial time determining whether a particular transaction can be charged back, only to learn that it cannot. Accordingly, a financial institution may incur substantial costs in processing transactions for chargeback or even incur a loss if the money spent processing such transactions exceeds any payments actually charged back to merchants.
Currently, financial institutions do not consider the cost of performing a merchant chargeback analysis, or the probability that an particular transaction will actually be charged back, when determining whether to chargeback a transaction. For example, a financial institution may simply analyze all accounts to determine whether any unpaid transactions on those accounts may be charged back to a merchant. The financial institution may thus review each transaction to determine whether the merchant followed the procedures it was obligated to perform (e.g., obtaining the customer's signature) in completing the purchase transaction. This way of processing transactions for chargeback is thus costly and inefficient. Indeed, this process typically results in charging back only about 35% of all transactions reviewed. The financial institution has thus reviewed nearly every account, even though only a low percentage of transactions are actually charged back. Accordingly, the financial institution does not effectively reduce its expenses, and thus maximize its profits, in appropriately charging back merchants for purchase transactions.
In view of the foregoing, there is presently a need for an improved system and method for managing purchase transaction data as part of determining whether to chargeback a particular transaction to a merchant. Specifically, there is a need to target only those purchase transactions that are likely to be charged back to a merchant, thereby reducing costs and maximizing profits of the financial institution.